How Gearing Works

Gearing increases the amount of funds available for investment, therefore magnifying potential gains or losses.
Australians have historically geared into property via a mortgage, but investors now recognise the benefits of gearing into the sharemarket as a way of meeting their investment objectives. This is because gearing:

1. increases the funds available to invest - potentially magnifying your returns and also losses;
   
2. allows for a larger investment portfolio - so you can start investing sooner rather than later;
   
3. offers diversification across a range of investments - through a wide selection of acceptable investments;
   
4. provides flexibility- allowing you to choose the degree of gearing that meets your investment objectives; and
   
5. gearing can potentially be tax efficient - depending on individual circumstances.

One form of gearing is margin lending. A margin loan is simply a revolving line of credit that allows you to borrow money which you use, in additional to your own, to invest. You can leverage an existing portfolio or create a new investment portfolio to help meet your investment objectives.